Oil Markets Are on Edge as Hurricane Beryl Barrels Towards Jamaica

Hurricane season is back, and oil markets are on edge as the earliest category 5 hurricane to form at this time of the year moves toward Jamaica.

- As commodity markets started to talk politics following last week’s Biden-Trump debate, analysts seek to gauge the impact of US gasoline prices on voter satisfaction.

- Nationwide gasoline prices are 3-4% lower year-on-year, with US gasoline consumption trending lower this year, gasoline cracks being a hefty $10 per barrel lower than in 2023 and inventories some 12 million barrels higher.

- However, swing states such as Arizona, Georgia or Nevada saw lower gasoline consumption than the US average, at 551 gallons per year compared to the federal average of 576 gallons, whilst also tending to pay more since Biden took office ($1.12/USG vs $1.06/USG nationally).

- Given that Trump-voting states tend to be more exposed to pump price volatility, due to them being more rural or having a lower average disposable income, even lower gasoline prices might be a problem for President Biden. 

Market Movers

- Oilfield services giant SLB (NYSE:SLB) is winding down operations in Libya from July 1 as more than a dozen oil companies owe it some $240 million in unpaid dues.

- Spanish oil major Repsol (BME:REP) is considering selling up to a 49% interest in its assets in the Eagle Ford play in Texas, currently producing over 50,000 boe/d, hoping to garner at least $1 billion from the sale.

- Italy’s energy giant ENI (BIT:ENI) is planning to divest more than $4 billion in upstream assets, with projects in Indonesia and Cyprus amongst the most likely candidates following its recent asset sale in Alaska. 

Tuesday, July 02, 2024

Oil traders have all become professional meteorologists in July, with the market following the rapid start to this year’s Atlantic hurricane season. Hurricane Beryl is threatening Jamaica as it moves towards the US-Mexican coast, the earliest category 5 hurricane to form at this time of the year. Meanwhile, Israel-Lebanon tensions keep the geopolitical risk premium priced in as well, lifting ICE Brent to $87 per barrel. 

Saudi Arabia Bets on Natural Gas. Saudi Arabia’s national oil firm Saudi Aramco (TADAWUL:2222) has signed contracts worth more than $25 billion for the 2nd phase of its giant 229 TCf Jafurah gas field and the 3rd phase of expanding its main gas grid, seeking to use more gas in power generation. 

US Walks Back SPR Replenishment Vow. The Biden administration has not awarded any contracts in its recent solicitation to buy an additional 6 million barrels of sour crude to the US SPR by the end of 2024, with seemingly no bids coming in below the cut-off level of $79.99 per barrel. 

Russia Extends Gasoline Export Ban Waiver. The Russian government has waived its ban on gasoline exports for another month until July 31, saying that fuel stockpiles are sufficient despite repeated Ukrainian drone strikes on refineries, bringing some 150,000 b/d of the fuel to the markets. 

China Creates New Driller for Tight Oil. Beijing is setting up a new state-controlled entity that would group current producers, combining CNPC, Sinopec, and also steel and industrial equipment firms, to search for ultra-deep productive reservoirs and tackle tight oil deposits.

Biden’s LNG Pause Challenged in Court. A federal judge in Lake Charles, Louisiana ruled that the Biden administration’s pausing of approval for LNG terminals contravened the US Natural Gas Act and was thus unconstitutional, with the Energy Department evaluating its next steps. 

Total Clinches Major Deal in Africa. French energy major TotalEnergies (NYSE:TTE) has signed an agreement to acquire a 60% interest in Block STP02 of Sao Tome and Principe, bolstering its offshore position in West Africa even as investment into neighboring Nigeria is stalling.   

Beijing Stops Publishing Solar Data. Attesting to the dire situation in China’s solar sector, straining from overcapacity, Chinese authorities have stopped publishing data that show the extent to which power from solar and wind plants is being wasted amidst constrained grids. 

US Air Travel Still Has Room to Grow. According to TSA statistics, US passenger air travel rose to 19.75 million passengers in the week ending 29 June, marking the highest-ever weekly reading and the second time this year already that an all-time high is set. 

Hedge Funds Hoard Cobalt as Prices Plunge. Hedge funds such as Anchorage Capital and Squarepoint Capital have been building physical positions in cobalt by buying up material, eyeing the wide contango, and the ensuing opportunity for “cash-and-carry” trades into 2025.

Rio Tinto Seeks to Avoid Mongolian Collapse. Global mining giant Rio Tinto (ASX:RIO) is in negotiations with workers at its Oyu Tolgoi mine in Mongolia, one of the largest copper deposits worldwide, after the company cut wages there by as much as 80%. 

South Africa Braces for Major Exodus. France’s oil giant TotalEnergies (NYSE:TTE) is considering relinquishing its acreage in offshore South Africa, having discovered 4.5 TCf of gas assets with the Luiperd and Brulpadda discoveries, however hindered by government red-tape and regulations. 

AngloAmerican Is Having a Tumultuous 2024. Shares of mining major AngloAmerican (LON:AAL) dropped almost 6% this week after a methane explosion caused a fire at the Grosvenor metallurgical coal mine, accounting for about 30% of the company’s annual coking output. 

Chinese Manufacturing Paints a Bleak Outlook. China’s factory activity contracted for a second straight month in June, with the PMI index coming in unchanged at 49.5, with trade tensions vis-à-vis the United States and Europe weighing on new export orders.

By Michael Kern for Oilprice.com

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